Management and Marketing Principles

FINAL EXAMINATION
1. Differentiate between market skimming and market penetration pricing
strategies. Explain the conditions within which they are effective. Cite specific
example.
Market-skimming pricing strategy sets high initial prices to skim revenue layers from
the market. It makes sense only under certain conditions.
First, the product’s quality and image must support its higher price, and enough buyers
must want the product at that price.
Second, the costs of producing a smaller volume cannot be so high that they cancel the
advantage of charging more. Finally, competitors should not be able to enter the
market easily and undercut the high price.
Example: When Apple first introduced iPhone, its initial price was as high as Php40,099
per phone. The phones were purchased only by customers who really wanted the sleek
new gadget and could afford to pay a high price for it. Six months later, Apple dropped
the price to Php20,099 for an 8-GB model and Php30,099 for the 16-GB model to
attract new buyers. Within a year, it dropped prices again to Php20,099 and Php30,099,
respectively, and you can now get a basic 8-GB model for free with a wireless phone
contract. Here, Apple is a prime example of a company following this strategy. With
skimming, your prices are set high to maximize profits in the short term by targeting the
customers most interested in your product. In the beginning, you make less but more
profitable sales because only early and eager buyers are willing to pay more. Then, the
price is steadily reduced over time to attract customers on a budget, who are happy to
buy your highly esteemed product for a bargain.
WHEREAS,
Market-penetration pricing involves setting a low price for a new product in order to
attract a large number of buyers and a large market share. Here, the high sales volume
results in falling costs, allowing companies to cut their prices even further. This is a
marketing strategy leveraged by businesses to attract shoppers to a new product, by
offering it at a lower rate. This is intended to lure customers away from competing
brands and to win more sales than similar products at a higher price point.
Example: Amazon, Facebook, and Samsung are well-known examples here, where
network effects dominate the market. They rapidly penetrate the market, bring down unit
costs, build up a loyal customer base, and create barriers to entry. The high volume
compensates for thin unit margins. If you gain many customers early on in such
markets, you are better positioned to maximize customer lifetime value from future
sales.
2. A brand is a name, a term, a symbol or a combination that distinguishes your
product from your competitors. Brand equity is different. Explain the concept of
brand equity and cite specific example.
Brand equity is the differential effect that knowing the brand name has on customer
response to the product or its marketing. It describes the level of sway a brand name
has in the minds of consumers, and the value of having a brand that is identifiable and
well thought of. Organizations establish brand equity by creating positive experiences
that entice consumers to continue purchasing from them over competitors who make
similar products. This is done by generating awareness through campaigns that speak
to target-consumer values, delivering on promises and qualifications when consumers
use the product, and loyalty and retention efforts.
Example: By offering consumers loyalty incentives such as points that can be
exchanged for discounts or a free product on their birthday, they are more likely to
continue to purchase from your brand rather than moving on to a competitor.
Awareness and experience are the two key principles of brand equity.
3. Marketers can choose from two basic promotion mix strategies—push
promotion or pull promotion. Compare and contrast these two strategies. Explain
with example.
In push marketing, the goal is to bring your brand or products to your customers. This
form of marketing is a lot more deliberate and proactive than other methods. Because
push marketing is a bit more aggressive than the alternative, businesses generally take
advantage of a short time period or try to generate sales quickly.
Push marketing usually means quicker sales. The other side of the coin with push
marketing is that it also usually involves spending money.
Example: One of the most popular forms of push marketing is the social media
marketing strategy, one example is the pay-per-click (PPC) advertising where marketers
can place banners, display ads, search engine ads, and shopping ads across a wide
range of platforms, usually by paying a small amount each time their ad is clicked on.
Pull marketing, on the other hand, involves naturally accruing traffic. The reasoning
here is to create high-value content suited for your target audiences and
letting them come to you. Of course, this doesn’t mean doing anything. Pull marketing
simply means being aware of the fact that there are already users actively seeking out
the products, services, or information that you offer and making it easier for them to find
it, and making it easier for them to get to their ultimate goal.
Example: The most prominent forms of pull marketing include search engine
optimization (SEO), creative social media content, and customer reviews.
4. Marketing channel is an important element in the marketing mix. What is the
main function of marketing channel and discuss its importance? Why are
companies increasingly turning to third-party logistics providers (3PLs).
Marketing channel is a system which ensures the distribution of the merchandise from
the producer to the consumers by passing it through multiple levels known as
middlemen. It is also known as channels of distribution. Every product is different from
one another and so are their channels of distribution.
Example: Mondelez India Foods Limited (Cadbury India Limited).
Cadbury is India’s most popular chocolate brand and we can easily buy it from any of
our next-door grocery stores. It reaches each and every part of the country, even to the
villages. All this possible because of marketing channels. Cadbury has limited
manufacturing units in India. With the help of a well-designed marketing channel, the
product reaches the depots located in the various states. From these depots, it is sent
to the agents and from there it reaches the distributors located in different cities.
The distributors will then sell the product to the wholesalers and the retailer who finally
makes it available to the customers.
Companies increasingly turning to a third-party logistics (3PL) provider because
3PLs is an outsourced partner that takes ownership of all or part of your order fulfillment
processes. Once you get a new online order, you send it to a 3PL to pick, pack, and
ship. In most cases, they also remain invisible to your customers and you can brand the
packaging.
3PLs can help with warehouse management, pick and packing, shipping your goods,
handling returns, inventory reporting, forecasting, and more.
5. There are different concepts in marketing. Two of those concepts are selling
and marketing concepts. Compare and contrast the selling and marketing
concepts, listing the key components of each philosophy. Give example of each.
The selling concept entails a focus on getting the consumer to the actual transaction
without regard for the customer’s needs or the product quality (a costly tactic). This
concept frequently excludes customer satisfaction efforts and doesn’t usually lead to
repeat purchases. 
The selling concept is centered on the belief that you must convince a customer to buy
a product through aggressive marketing of the benefits of the product or service
because it isn’t a necessity. An example is soda pop. Everyone knows what Coke has
to offer, but it’s widely known that soda lacks nutrients and is bad for your health. Coca-
Cola knows this, and that’s why they spend astonishing amounts of money pushing their
product. 
The marketing concept is based on increasing a company’s ability to compete and
achieve maximum profits by marketing the ways in which it offers better value to
customers than its competitors. It’s all about knowing the target market, sensing its
needs, and meeting them most effectively. Many refer to this as the customer-first
approach. An example is Glossier (skincare and beauty products) is a recognizable
example of this marketing concept. The company understands that many women are
unhappy with the way that makeup affects the health of their skin. They also noticed
that women are fed up with being told what makeup products to use. With this in mind,
Glossier introduced a line of skincare and makeup products that not only nourish the
skin but are also easy to use and promote individualism and personal expression with
makeup.
To differentiate its components:
The selling concept takes an inside-out perspective. It starts with the factory, focuses
on the company’s existing products, and calls for heavy selling and promotion to obtain
profitable sales. It focuses primarily on customer conquest—getting short-term sales
with little concern about who buys or why.
In contrast, the marketing concept takes an outside-in perspective. The marketing
concept starts with a well-defined market, focuses on customer needs, and integrates
all the marketing activities that affect customers. In turn, it yields profits by creating
relationships with the right customers based on customer value and satisfaction.